Baucus weighs bipartisan tax renewal plan

WASHINGTON (Reuters) - The top tax-writing lawmaker in the U.S. Senate expressed interest in a bipartisan proposal to extend all tax cuts expiring at year's end, coupled with a mandate to force Congress to revamp the tax code within a set time frame.

Senator Max Baucus' receptiveness to the idea reflects one strand of thinking among some Democrats: that despite their preference for letting tax rates rise only for the wealthy, a more likely scenario in an end-of-the-year deal with Republicans may involve extending the low rates for all taxpayers at least for a short period of time.

The subject came up Tuesday during a hearing of the Senate Finance Committee, chaired by Baucus. He was querying Democratic budget veteran Alice Rivlin and former Republican Senator Pete Domenici on their plan to avoid hitting the so-called "fiscal cliff" - the looming expiration of low tax rates for nearly every American, along with several other fiscal deadlines.

Baucus asked how quickly he could see their proposal, and Domenici said he could be ready by the time Congress needs to renew its budget, which expires on September 30.

"Frankly if you had it ready before then," it would be a good thing, Baucus said. "We're all in this together."

Later, Baucus told reporters that an across-the-board extension of the tax cuts was among the options he would consider to avoid hitting the fiscal cliff, which the Congressional Budget Office has said could push the economy back into a recession.

Congress is not expected to act on expiration of the historically low tax rates, enacted in 2001 and 2003 under president George W. Bush and extended for two years by President Barack Obama, until after the November 6 elections.

Obama and many Democrats say they want to extend nearly all of the tax rates - but to allow rates for the wealthy to rise.

The comments by Baucus suggest he may be open to extending all of the tax rates with the promise of tax reform.

Republican House Speaker John Boehner has backed some type of fast-track mechanism to speed a tax reform process at the end of the year. Republicans want to extend all of the Bush-era tax cuts.

Some Democrats have veered from this position, most notably former President Bill Clinton.

For a summary of the fiscal cliff deadlines, see:

Rivlin said that though it would be virtually impossible to enact tax reform in the lame duck session - the short session after the election and before a newly-elected Congress steps in - the groundwork could be laid.

"The basic point is we're not in favor of just extending the tax cuts," Rivlin, a former Congressional Budget Office director said.

Embedded within an extension would have to be a process that "forces you to come to grips with the real problems," of the tax system.

An overhaul plan developed by Rivlin and Domenici would lower marginal tax rates and cut or limit tax deductions.

Baucus praised what he called the "balanced" nature of the Rivlin-Domenici plan, with its combination of spending cuts and revenue increases.

The Montana Senator did express concerns about elements dealing with Medicare and Social Security.

(Reporting By Kim Dixon; Editing by Andrew Hay)